Agency Update

September 14, 2020

Treasury yields remained in their recent trading range and moved lower during the holiday-shortened week.  The biggest moves occurred on the longer end of the curve, flattening the yield curve and compressing the 2s-to-10s spread back down to 53 basis points.  Both agency bullets and callables widened by approximately 1 to 4 basis points on the week, depending on term and structure.  Treasury yields are little changed so far this morning.  The biggest item on the calendar this week is the FOMC meeting that concludes on Wednesday.  While the market does not expect the Fed to change its overnight target rate or its approach to quantitative easing, many will look for changes to their forward guidance following their new inflation targeting framework.  Additionally, the Fed governors will update their Summary of Economic Projections, and the market will get its first look at the number of FOMC members that see rate hikes beginning in 2023.

Agency bullets widened across the curve and cheapened by the most on the longer end, with 10-year finals widening versus Treasurys by approximately 3 basis points.  The story was similar for most callables last week, with wider spreads across the curve but the biggest moves occurred on longer maturities.  The Vining Sparks trade desk remained highly active last week and saw a pickup in volume in 8- and 9-year callable paper, which appeared to show the most relative value.

The following table reflects last week’s total issuance and call activity across the primary GSE issuers.  Total issuance declined on the short week to $8.7 billion while call volume fell to $3.9 billion.  Through less than three full quarters, total call volume year-to-date is up to approximately $350 billion, which basically equals the total of calls from 2017 to 2019.  Callable owners can continue to expect heavy call volume, and for specific dates and amounts, be sure to log in to the Client Portal on the Vining Sparks website.

Last week the Federal Home Loan Bank announced a $1.0 billion 5-year Global note that printed at +15, 3 basis points tighter than the 5-year Benchmark issued two weeks ago.  This week Fannie Mae has an issuance slot on Wednesday, and next Wednesday Freddie Mac has a Reference issuance date.

Daniel Anderson

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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